LONDON MARKET MIDDAY: Europe up despite poor data as earnings impress

(Alliance News) - Blue-chip equities in London moved higher on Monday morning, with a decent batch of corporate earnings allowing the FTSE 100 to shake off largely poor manufacturing sector readings from Europe and Asia.

The large-cap index was up 26.75 points, or 0.4%, at 7,450.18 midday Monday. The mid-cap FTSE 250 index was down just 0.038 of a point at 20,157.28. The AIM All-Share index was down 1.80 points, or 0.2%, at 920.00.

The Cboe UK 100 index was up 0.3% at 743.90. The Cboe 250 was flat at 17,575.63. The Cboe Small Companies was up 0.1% at 13,899.72.

In Paris, the CAC 40 stock index was up 0.3%. In Frankfurt, the DAX 40 was up 0.4%.

"This strengthened market sentiment comes despite disappointing macro data from China over the weekend, with manufacturing PMI falling short below expectations while property sales also contracted, underlying challenges the second-largest economy in the world still must face," ActivTrades analyst Pierre Veyret commented.

"The recent move from the [European Central Bank], which introduced its new [transmission protection instrument] tool aimed at keeping bond markets and borrowing costs between eurozone countries under control, has significantly helped cash going back to the stock market. However, investors may be tempted to take some profit out following the best monthly performance registered by equity markets since November 2020, while major bearish market drivers such as rising inflation, tightening liquidity and the prospect of a recession still linger."

The FTSE 100 advanced by 3.5% in July, the CAC 40 by 8.9% and the DAX 40 by 5.5%.

The eurozone's manufacturing sector fell into contraction last month, though the UK's clung onto growth.

Eurozone manufacturing activity shrank in July as inflation "squeezed" demand, according to S&P Global.

The manufacturing purchasing managers' index declined to 49.8 in July from 52.1 in June, signalling the sharpest production downturn since the first wave of strict Covid lockdowns in May 2020. Any reading below the no-change level of 50.0 indicates contraction, while one above signals expansion.

Growth in the UK manufacturing sector weakened in July, meanwhile, with pressure from a cost of living crisis and even a heatwave hitting new work.

The latest S&P Global/CIPS UK manufacturing PMI fell to 52.1 points in July, from 52.8 in June. Though remaining above the neutral mark, the PMI hit its weakest level in over two years.

Still to come on Monday is a PMI reading from the US at 1445 BST.

Ahead of the data, the dollar was on the decline.

The pound was quoted at USD1.2241 around midday on Monday, up markedly from USD1.2163 at the London equities close on Friday. A week ago, sterling bought just USD1.2034.

The euro traded at USD1.0247, up from USD1.0196 late Friday. Against the yen, the greenback faded to JPY132.15 from JPY133.45.

The dollar has weakened following the latest US Federal Reserve interest decision on Wednesday. Though the central bank's Federal Open Market Committee voted for its second straight 75-basis-point hike, investors interpreted subsequent comments from Chair Jerome Powell as dovish.

Powell said the Fed would not hesitate to implement a stronger rise if needed, but he also hinted that the pace of rate hikes could slow.

"We do not think Fed officials will be very happy with the market's dovish take on its decision last week and are likely to push back this week. As such, prepare for comments that tilt decidedly hawkish," BBH Global Currency Strategy analysts commented, looking ahead to remarks from FOMC members Charles Evans, Loretta Mester and James Bullard this week.

Also on the central banking horizon, the Reserve Bank of Australia reveals its latest interest rate decision on Tuesday, before the Bank of England on Thursday. Both are expected to lift benchmark rates by 50 basis points, according to consensus cited by FXStreet.

In London, HSBC shares surged 6.5%.

The China-focused lender vowed to increase returns to shareholders, as it looks set to benefit from the current interest rates cycle.

In the six months to June 30, HSBC's pretax profit fell to USD9.18 billion from USD10.84 billion a year before.

Keeping a lid on profit was HSBC reserving for USD1.09 billion in expected credit losses, swinging from a USD719 million release the year prior. The bank said the provision reflects "heightened economic uncertainty and inflation".

"We understand and appreciate the importance of dividends to all of our shareholders. We will aim to restore the dividend to pre-Covid-19 levels as soon as possible. We also intend to revert to quarterly dividends in 2023," Quinn said.

The bank declared an interim dividend of USD0.09, rising from the USD0.07 distributed a year prior. Its interim dividend in the first half of 2019, before the onset of the pandemic amounted to USD0.31 per share.

Pearson added 9.2%, as the education publisher posted a rise in interim sales and profit and announced a strategic review for a unit.

Revenue in the first half of 2022 increased 12% to GBP1.79 billion from GBP1.60 billion a year before. Pretax profit jumped to GBP179 million from just GBP4 million. Pearson had booked GBP85 million in restructuring costs a year earlier.

Adjusted operating profit was 26% higher year-on-year at GBP160 million from GBP127 million.

Pearson upped its payout by 4.8% to 6.6 pence per share from 6.3p.

Pearson is launching a strategic review of its Online Program Management business, which is part of its Virtual Learning segment. The OPM review comes ahead the end of Pearson's contract with Arizona State University next June. Pearson had announced the end of the pact in April.

Quilter was the best FTSE 250-listed performer, jumping 13%.

NatWest is mulling making an offer for the London-based wealth manager, the Daily Mail reported. According to the newspaper, private equity firms CVC Capital Partners, Bain Capital and BC Partners are sizing up Quilter, which currently has a market capitalisation of GBP1.67 billion.

NatWest was up 2.2%.

New York equity market futures were lower. The Dow Jones Industrial Average is called down 0.1%, while the S&P 500 and Nasdaq Composite are both called 0.2% lower.

Twitter shares moved 0.9% lower in pre-market trade after former suitor Elon Musk filed claims against the social media firm. Musk is fighting back against Twitter's lawsuit demanding he be held to his USD44 billion buyout deal.

Musk's counter-suit was submitted along with a legal defence against Twitter's claim that the billionaire is contractually bound to complete the deal he inked in April to buy Twitter, the Chancery Court in the state of Delaware said in a notice.

Since the offer was announced, Twitter shares never closed above the USD54.20 sum Musk agreed to buy the business for, suggesting the market had misgivings about whether the acquisition would actually go ahead.

Brent oil was quoted at USD102.56 a barrel midday Monday, down from USD105.24 late Friday. Gold stood at USD1,772.62 an ounce, up from USD1,763.38.

By Eric Cunha; ericcunha@alliancenews.com

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